Roth IRA—The Utility Player

A utility player is someone who has the ability to play multiple positions competently for their team. As an Arizona sports fan growing up, Craig Counsell comes to mind—he played all four infield positions and even some outfield throughout his 16 seasons in the MLB. His competency in a variety of positions allowed his managers flexibility in assembling winning lineups around him.

I often think of the Roth IRA in a similar light—the utility player of investment accounts—as it can provide flexibility to an overall financial plan. Ideally, the Roth IRA is treated as a long-term vehicle used to compound contributions tax free for retirement; however, it can also serve as a tax-efficient source of liquidity during a time of need. Like Craig Counsell, who was on base during two World Series Game 7 walk-off wins, a Roth IRA has the propensity to be in the right place at the right time.

Because the construction industry can be lumpy in terms of project flow and more vulnerable to market cycles than other industries, a Roth IRA can be a particularly powerful investment tool for Those Who Build. It is more accessible than a Traditional IRA, a 401(k), Roth 401(k) or even a taxable investment account.  

With a Roth IRA, you’re able to access your contributions at any time (you’ve already been taxed on them), even if you haven’t yet turned 59 ½. In addition, there are built-in features that allow you to access earnings prior to turning 59 ½ through certain qualified distributions—for example, to buy, build or rebuild a home as a first-time home buyer. To access earnings via a qualified distribution, five years must have passed since the tax year of your first contribution. This is incentive to ‘start the clock’ and begin contributing to a Roth IRA sooner rather than later. A contribution for tax year 2019 by July 15, 2020 would give you a head start of ~1.5 years towards that 5-year requirement for maximizing its use as the utility player in your financial plan.

Coming off what was conceivably a strong year for Those Who Build, there may be some extra cash sitting around beyond what’s been set aside for an emergency fund—consider a Roth IRA* as a recipient.

For specifics on income limitations and withdrawal implications, consult your advisor or see here. For Diamondbacks nostalgia, see here.

- Chandler Cole, LPL Financial Advisor

*The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.